Global financial markets: financial deregulation and crises

This paper analyses the transformations typical of financial globalization which have occurred in the financial markets;over the past 25 years. It arg ues that banking crises arise when the active management of balances encoun ters currency mismatch problems; when credit is concentrated in certain sec tors (for example; oil or real estate) or companies; when real interest rat es are high during periods of lower economic growth; when leverage levels a re high as a result of rapid privatizations or takeovers; or when there is a combination of these factors. It considers that, in the context of freedo m of capital movement, the heavy concentration of sources of national and i nternational liquidity in the hands of private operators has not led to a r ecovery in development financing: but instead promotes a new level of compe tition and denationalization on the part of development-financing systems. This strengthens the conditions favouring the transfer of locally generated savings towards the return to be obtained from very short-term capital wit h high expected yields. At the same time, it fails to solve the problems of financial fragility caused by the differential between the. return on thes e flows and increases in local productivity and profitability, the result b eing continual bankruptcies and liquidations of financial intermediaries. T he paper concludes by stressing the importance of state monetary and credit management in bringing about a stable relationship between growth and inte rest rates.